The European Union is exploring a novel strategy to finance Ukraine’s defence and reconstruction by utilising roughly $210 billion in frozen Russian central bank assets. These assets were immobilised in the West following Moscow’s invasion of Ukraine. The European Commission’s proposal aims to provide financial support to Ukraine without outright confiscation of the assets, a move considered a red line for many member states and the European Central Bank.
The core of the plan involves the EU issuing a ‘Reparations Loan’ to Ukraine, supported by cash balances accrued from maturing securities that were immobilised in 2022. Crucially, Ukraine would only be required to repay this loan once it receives war reparations from Russia in a peace agreement. This mechanism enables Ukraine to access and utilise the funds immediately, addressing its urgent financial needs without waiting for potential future payments from Moscow.
Currently, approximately 210 billion euros ($229 billion) of the frozen assets are held in Europe, with 185 billion euros managed by Euroclear, a Brussels-based central securities depository. Of this, around 175 billion euros has been converted into cash as the securities mature, forming the potential basis for the EU loan. Before any new loan is issued, the EU would likely repay the 45 billion euro ($50 billion) G7 loan to Ukraine, which was agreed upon last year and is to be repaid with profits generated from the immobilised Russian assets.
To avoid directly seizing Russian assets, the strategy involves transferring cash from Euroclear to a newly established Special Purpose Vehicle (SPV) owned by EU or G7 governments. In exchange, the European Commission would issue Euroclear with zero-coupon bonds guaranteed by the SPV’s owners. The SPV would invest the cash more profitably than overnight deposits in the ECB, aiming to generate higher returns for Ukraine. While the EU prefers participation from all 27 member states and non-European G7 countries, the SPV could be established without Hungary and Slovakia if necessary.
